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June 22, 2010

Existing Home Sales Fell 2.2% in May on Expiration of Tax Credit

Spring surge in sales expected to fall even further as effects of federal stimulus wear off

Existing home sales fell more than expected in May after the federal tax credit for home buyers ended April 30, the National Association of Realtors (NAR) reported on Tuesday, June 22. The 5.66 million single-family houses, townhomes, condos and co-ops purchased represented a 2.2% drop-off in sales versus the 5.79 million units sold in April.

Compared to May 2009, the number of existing homes sold remained high, with May 2010 closings 19.2% above the 4.75 million units sold a year ago, according to the NAR report. At the housing market's height in September 2005, however, sales peaked 22% higher, at 7.25 million.

"We are witnessing the ongoing effects of the home buyer tax credit, which we'll also see in June real estate closings," said NAR chief economist Lawrence Yun. "However, approximately 180,000 home buyers who signed a contract in good faith to receive the tax credit may not be able to finalize by the end of June due to delays in the mortgage process, particularly for short sales."

In the real estate market, a short sale is a sale where the proceeds are not sufficient to cover the balance owed on the original mortgage.

Other economists were even less upbeat about the home sales news.

Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd., Valhalla, New York, said in an analyst note that the surging pending home sales index pointed clearly to sales rising above 6 million and that sales would have been higher without delays in the closing process or flood insurance issues.

The NAR report includes home sales when a deal closes. As a result, the effect of the $8,000 tax credit for first-time homebuyers continued into May as buyers scrambled to get their sales contracts signed and homes officially purchased by the June 30 deadline.

"The tax credit undoubtedly pulled into the spring transactions which would have taken place in the summer, so the next few months will be tough," Shepherdson said.

Sales in the Northeast were off 18.3%, more than any other region. The West was up 4.9%, the South was up 0.5%, and the Midwest was unchanged.

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